by Samuel Securities
Largest domestic producer of flour. INDF subsidiary, PT Bogasari, is the largest wheat flour producer in Indonesia with a market share of 52% - 53%. Bogasari is also the largest flour producer in the world with the largest production capacity in one location.
Strong Brand and various types of products. INDF flour still dominate the market with a strong brand and has been recognized by consumers as well as various types of products ranging for household to industrial needs.
INDF 2nd · revenue driver. Currently, the division contributed revenues Bogasari second largest after Indofood CBP (ICBP). As of 1Q11, with a production contributed 26% of total sales followed by the Agribusiness division with a contribution of 22%. We are confident in the future, Bogasari able to maintain sales at the same time the portion of market share.
Maintain portion of market share. One of the INDF strategy to maintain market share is to focus on sales volume. Thus, company margins can be reduced from 14.1% in FY10 to 10% for FY11 (we estimate) because the company has yet to raise the average price.
Potential new entrants. Currently there are 14-16 active flour mills in Indonesia with the potential addition of a rival manufacturer. This can lead to diluted of market share for Bogasari flour in Indonesia.
Valuation and recommendation. Currently, trading at 18.2x PE'11F INDF. We see that prices in the market has reflected the fair value valuation of the company although it was slightly below the sector average of 18.9x PE'11F peers. We are still waiting for the report performance for a period of 1H11 and still maintain our Price Target on Rp6, 000, but now we change the recommendation from Buy to Hold because the price premium and the market already exceeds the estimated fair value of the company. HOLD (Downgrade)